To many, Adam Smith is the embodiment of conservative economics. Yet in The Wealth of Nations he casts himself in the role of iconoclast, taking aim at mercantilism and the decaying feudal institutions that continued to dominate Europe in the eighteenth century, even when they were no longer relevant. Max Lerner described Smith as,
a gentle sage with dynamite flowing from his pen,
an apt characterization of the quiet university professor who synthesized a treatise on political economy that flew in the face of the status quo.
Remarkable also for its broad scope–Smith’s work covers subjects such as the historical origin of freedom, the history of Rome, the history of the colonies, and the origin of city independence–The Wealth of Nations has made numerous contributions to economic theory. There are, however, several salient elements for which it is best known.
At the outset of the work, Smith sets himself against the prevalent, mercantilist, thinking of the time, which held that the wealth of a nation is determined by how much money it possesses. With the words
The annual labour of every nation is the fund which originally supplies it with all the necessaries and conveniences of life…
Smith not only shows himself to be something of a revolutionary but he presents the very core of his economic doctrine: the entire wealth of a nation is its annual production of goods and services.
Having established the produce of labor as the standard for true opulence, Smith then goes on to demonstrate how a division of labor engenders improvements in output, and how it created the use of money. The emphasis on labor is found too in Smith’s famous labor theory of value. Therein he posits that the nominal price of a commodity is determined in money, but that its real value is found in the labor that went into it. As societies advance, wages, profit, and rent also enter into price.
There are many memorable lines to quote from The Wealth of Nations, but perhaps its most famous are these:
It is not form the benevolence of the butcher, the brewer or the baker that we expect our dinner, but from their regard of their own interest. We address ourselves not to their humanity, but to their self-love, and never talk to them of our necessities, but of their advantage.
Here is one of Smith’s fundamental principles, that the prime motivation of humankind in economic terms is self-interest–a part of the natural order of the universe–which, through the tempering hand of competition, leads to the good of society as a whole. He concludes that the free circulation of commodities, regulated by the law of supply and demand and unencumbered by government restraint, will lead to the greatest benefit for the greatest number. This is Smith’s “system of perfect liberty,” what we in the current idiom call “laissez-faire capitalism.”
When The Wealth of Nations was completed, it was met with due admiration by Smith’s large circle of friends and admirers, and by the beginning of the nineteenth century there were numerous English editions as well as translations in Danish, Dutch, French, German, Italian, Spanish, and Russian. Today, of course, its authority extends to countries east and west. As Professor Bruce Mazlish of M.I.T. notes,
Smith’s title, The Wealth of Nations, was accurate in its use of the plural, for he influenced not only his country but the world.
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